8. Stock incentive plan

The Company has a 2012 Stock Incentive Plan (2012 Plan) under which the Company has reserved 1,216,772 shares of common stock, to be issued in connection with stock options and other equity awards issued under the 2012 Plan. The 2012 Plan provides for option grants at exercise prices not less than 100% of the fair value of common stock on the date of grant. The Company’s 2012 Plan terminated in connection with the Company’s initial public offering, and, accordingly, no shares are available for issuance under this plan. The 2012 Plan will continue to govern outstanding awards granted thereunder. As of December 31, 2014, the combined reserve under the 2012 Plan and the 2002 Plan was 1,531,258 shares of common stock.

Previously, the Company had a 2002 Plan, as amended. As of March 12, 2012, the 2002 Plan was terminated and the 2012 Plan was created in its place. On termination, the 2002 Plan had 1,424,540 shares of common stock outstanding. Any shares returned to the 2002 Plan as a result of expiration or termination of equity awards (up to 1,424,646 shares) are added to the 2012 Plan Share reserve.

The Company’s board of directors has adopted a 2014 Equity Incentive Plan, or the 2014 Plan, and the Company’s stockholders have approved it. The 2014 Plan became effective immediately prior to the effectiveness of our initial public offering. The Company’s 2014 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

As of December 31, 2014, a total of 895,346 shares of common stock have been reserved for issuance pursuant to the 2014 Plan, of which options to purchase 730,375, shares of the Company’s common stock were outstanding, and 221,178 shares remained available for issuance.  In addition, the shares to be reserved for issuance under the Company’s 2014 Plan will also include shares returned to the 2012 Plan and 2002 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under the 2012 Plan and 2002 Plan is 2,328,569 shares). The number of shares available for issuance under the 2014 Plan also includes an annual increase on the first day of each fiscal year beginning in 2015, equal to the least of:

Options typically expire between seven and ten years from the date of grant and vest over one to four year terms. Options have been granted to employees and consultants of the Company at the deemed fair market value, as determined by the Board of Directors, of the shares underlying the options at the date of grant.

The Company’s board of directors adopted a 2014 Employee Stock Purchase Plan, or the 2014 ESPP Plan, and the Company’s stockholders have approved it.  The 2014 ESPP Plan became effective immediately prior to the effectiveness of our initial public offering which was filed on February 12, 2014.  The Company’s 2014 ESPP Plan provides for the grant to all eligible employees an option to purchase stock under the 2014 ESPP Plan, within the meaning Section 423 of the Internal Revenue Code, and provides for six-month offering periods.  Our ESPP Plan permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s base straight time gross earnings, incentive compensation, bonuses, overtime and shift premium, but exclusive of payments for equity compensation and other similar compensation.  A participant may purchase a maximum of 1,500 shares during a purchase period.  Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month period.  The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date.  The number of shares available for issuance under the 2014 ESPP Plan also includes an annual increase on the first day of each fiscal year beginning in 2015, equal to least of:

The activity for the 2014 ESPP Stock Plan is as follows:

The number of shares available to grant under the 2014 ESPP Plan as of December 31, 2014 was 148,711. Stock-based compensation expense recognized in 2014 for the 2014 ESPP Plan was $134 and is combined with the 2014 Stock Option Plan compensation expense for a total compensation expense of $1,451 for the year ended December 31, 2014.

The activity for stock options under our option plans is as follows:

The number of equity awards available for grant under the 2014 Plan as of December 31, 2014 and under the 2012 Plan for 2013 was 221,178 and 276,839, respectively.  The aggregate intrinsic value for options that were exercised for the year ended December 31, 2014, December 31, 2013 and December 31, 2012 was $15,495, $30, and $2, respectively.

The following table summarizes information about stock options outstanding at December 31, 2014:

The following table summarizes information about stock options outstanding at December 31, 2013:

Employee stock-based compensation expense recognized in 2014 and 2013 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures at a rate of 6.9% and 7.0%, based on the Company’s historical option cancellations. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For the years ended December 31, 2014, 2013 and 2012, stock-based compensation expense recognized under ASC 718, included in cost of sales, sales and marketing expense, general and administrative expense, and research and development expense, totaled $1,451, $230 and $60, respectively.

Valuation assumptions

The employee stock-based compensation expense recognized under ASC 718 was determined using the Black-Scholes method.

Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term. The expected term of the options was based on the simplified method outlined in ASC 718. The volatility factors were based on five peer companies selected from Dow Jones Industry Classification Benchmark (ICB) codes 4535 and 4537. These codes include companies which are the same market categories as the Company, which is the medical equipment and supplies line of business. The peer companies were selected based on similarity of market capitalization, size and certain operating characteristics. The calculated volatility value was established by taking the historical daily closing values prior to grant date, over a period equal to the expected term, for each of the peer companies.

When the period of data available was less than the expected term, closing values for the longest period of time available were used. The calculated historical volatility of each of these companies was then averaged to determine the calculated value used by the Company.

The value of employee options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used:

Under these assumptions, the total weighted average fair value of stock options granted during the years ended December 31, 2014, 2013, and 2012 was $5,329, $1,705, and $95, respectively.

As of December 31, 2014 and December 31, 2013 there was $4,948 and $1,370, respectively of total unrecognized compensation expense related to non-vested share-based compensation granted under the Plan.